ICRA reaffirms the rating of [ICRA]BB (Stable) for bank facilities of Ganges Ford (Proprietor: Lexicon Commercial Enterprises Limited)

June 08, 2017

Ganges Ford (Proprietor: Lexicon Commercial Enterprises Limited) Summary of rated instruments

Instrument*	Rated Amount (in Rs. crore)	Rating Action
Fund-based - Cash Credit	2.00	[ICRA]BB (Stable); Reaffirmed
Fund-based - e-DFS	14.00	[ICRA]BB (Stable); Reaffirmed
Fund-based - Ad hoc Limit on e-DFS	2.80	[ICRA]BB (Stable); Reaffirmed
Fund-based - Dropline Overdraft	3.50	[ICRA]BB (Stable); Reaffirmed
Unallocated Limits	0.43	[ICRA]BB (Stable); Reaffirmed
Total	22.73

*Instrument details are provided in Annexure-1

Rating action

ICRA has reaffirmed the long-term rating of [ICRA]BB (pronounced ICRA double B)1assigned to the Rs. 2.00-crore2cash-credit, the Rs. 14.00-crore e-DFS, the Rs. 2.80-crore ad-hoc limit on e-DFS and the Rs. 3.50-crore dropline overdraft facilities of Ganges Ford (Proprietor: Lexicon Commercial Enterprises Limited (GF). ICRA has also reaffirmed a long-term rating of [ICRA]BB to the Rs. 0.43-crore unallocated limits of GF. The outlook on the long-term rating is 'Stable'.

Rationale

The reaffirmation of rating takes into account the long experience of the promoter in the automobile dealership business and GF's established market position as the company is one of the three authorised dealers of Ford India Private Limited (FIPL) in Kolkata and among the six dealers in West Bengal. Besides, the company has a diversified revenue stream through the sale of vehicles, and spare parts/ accessories and service income.

The rating, however, continues to be constrained by the inherently low margins of the company on account of industry dynamics and commission structure decided by the principal. Its weak financial profile is reflected by an aggressive capital structure and subdued level of coverage indicators. The rating also considers GF's exposure to the cyclical nature of the Indian auto industry and the competition faced from other automobile dealers in the region, and high geographical concentration risk, with its presence being limited to the state of West Bengal.

In ICRA's opinion, the ability of the company to increase the scale of operations while improving its profitability, capital structure and coverage indicators, and manage its working capital requirement efficiently would remain key rating sensitivities, going forward.

1 For complete rating scale and definitions, please refer to ICRA's websitewww.icra.in or other ICRA Rating Publications

2 100 lakh = 1 crore = 10 million

Key rating drivers Credit strengths

• Long experience of the promoter in the automobile dealership business

• Established market position, with the company being one of the three authorised dealers of Ford India Private Limited (FIPL) in Kolkata and among the six dealers in West Bengal

• Diversified revenue stream through the sale of vehicles, and spare parts/ accessories and service income

  Credit weaknesses

• Intense competition among dealers of various automobile companies and the commission structure decided by the principal, leading to thin margins

• Weak financial profile characterised by an aggressive capital structure and subdued level of coverage indicators

• High geographical concentration risk, with operations limited only in West Bengal

• Exposure to the inherent cyclicality of the Indian auto industry which leads to volatility in revenues and profits

Description of key rating drivers:

The company was incorporated in 2004 by the Kolkata-based Mr. Harish Himatsingka, who has long experience in the automotive dealership industry. It is an authorised dealer of FIPL and sells and services passenger vehicles, spare parts and accessories. The company has a showroom and two workshops in Kolkata, and an ESSO facility in Berhampore, West Bengal. Vehicle dealership business comprises several revenue streams-the primary one being the sale of new cars, augmented by income from sale of spares and accessories, servicing of vehicles, and incentives from vehicle manufacturers. Since the company's operating income (OI) primarily depends on the sale of new vehicles, it remains exposed to the cyclical nature of the Indian auto industry. Moreover, with rapid expansion of dealership by the new OEMs and aggressively-priced products, the competition has increased much over the last few years. As a result, GF faces stiff competition from other OEM dealers in the region.

The company's operating income increased marginally from Rs. 89.19 crore in FY2015 to Rs. 92.22 crore in FY2016, witnessing a marginal growth of around 3%, primarily on account of marginal increase in sales volume of vehicles and higher average realisation. The operating profit margin continued to remain thin and stood at 2.82% in FY2016 on the back of intense competition among dealers in a high volume, low-margin business. Moreover, they are regulated by the OEM to a large extent. The dealership business has most of the borrowings related to funding of working capital as it requires considerable inventory stocking, which makes the capital structure of the company aggressive. High debt level, coupled with low profitability, has kept the coverage indicators weak. The company's working capital intensity of operations remained high due to high inventory holding, as reflected by net working capital relative to operating income (NWC/OI) of 11% in FY2016.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable CriteriaCorporate Credit Rating Methodology AutomobileDealerships

About the company:

Incorporated in 2004, Ganges Ford (Proprietor: Lexicon Commercial Enterprises Limited) (GF) is an authorised dealer of Ford India Private Limited (FIPL). The company sells and services vehicles along with spare parts and accessories. GF has a showroom and two workshops in Kolkata, and a showroom with an exclusive sales and service outlet (ESSO) in Berhampore, West Bengal. The company is promoted by the Kolkata-based Mr. Harish Himatsingka, who has long experience in the automotive dealership industry.

Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating history for last three years: Table:

S.No	Name of Instrument	Current Rating			Chronology of Rating History for the past 3 years
		Type	Rated amount (Rs. Crore)	Month-year & Rating	Month- year & Rating in FY2017	Month- year & Rating in FY2016	Month- year & Rating in FY2015
				June, 2017	June, 2016	-	March, 2015
1	Cash Credit	Long Term	2.00	[ICRA]BB (Stable)	[ICRA]BB (Stable)	-	[ICRA]BB (Stable)
2.	e-DFS	Long Term	14.00	[ICRA]BB (Stable)	[ICRA]BB (Stable)	-	[ICRA]BB (Stable)
3	Ad hoc Limit of e-DFS	Long Term	2.80	[ICRA]BB (Stable)	[ICRA]BB (Stable)	-	[ICRA]BB (Stable)
4	Dropline Overdraft	Long Term	3.50	[ICRA]BB (Stable)	[ICRA]BB (Stable)	-	-
5	Unallocated Limits	Long Term	0.43	[ICRA]BB (Stable)	-	-	[ICRA]BB (Stable)
6	Term Loan	Long Term	-	-	[ICRA]BB (Stable)	-	[ICRA]BB (Stable)

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the websitewww.icra.in

Annexure-1 Details of Instrument

Instrument	Date of Issuance/ Sanction	Coupon rate	Maturity Date	Amount Rated (Rs. crore)	Current Rating and Outlook
Cash Credit	-	-	-	2.00	[ICRA]BB (Stable)
e-DFS	-	-	-	14.00	[ICRA]BB (Stable)
Ad hoc Limit of e-DFS	-	-	-	2.80	[ICRA]BB (Stable)
Dropline Overdraft	-	-	-	3.50	[ICRA]BB (Stable)
Unallocated Limits	-	-	-	0.43	[ICRA]BB (Stable)

Source: Ganges Ford (Proprietor: Lexicon Commercial Enterprises Limited)